Working Thesis
Teresa Rokos
February 2019
Introduction
Abstract
This thesis evaluates how the market power of insurers and hospitals in geographical sub-markets determines the prices insurers and hospitals negotiate for hospital care. I will examine to what extent the variation in prices is explained by variation in costs and quality versus variation in market power, which may play an important role in bilateral price negotiations for services. Using carrier-hospital specific prices for outpatient medical procedures from New Hampshire’s NH HealthCost website, I compare the estimated prices for the same services across the state, both between hospitals and within hospitals. The methodology for the collection of this data can be found here.
Motivation
The U.S.’s expenditure on health care has grown rapidly over the last few decades and has outpaced that of many peer countries without significant returns to quality (e.g. OECD 2017; Etehad and Kim 2017; Reinhardt et al., 2004). A substantial body of research has determined that the biggest driver behind the U.S. health care expenditure is not greater utilization or social spending but quite simply higher prices (e.g. Anderson et al., 2003; Papanicolas et al., 2018). Given that the $3.3 trillion spent on health care annually (17.9% of GDP) (Centers for Disease Control and Prevention 2017) erodes the budgets of families and individuals, state and local governments, and the federal government, understanding the sources of variation in these prices is of tremendous import.
I choose to focus this paper on hospital prices because hospital care constitutes the largest component of U.S. health care spending at 32.4% ($1.0825 trillion) of national health expenditure (Centers for Disease Control and Prevention 2017) as shown in Figure 1, and a vast body of research has identified wide variation in private insurance reimbursements to hospitals for the same services and/or diagnoses citations. Cooper et al., 2015 finds that for the privately insured, only about half of the variation in expenditure is due to the quantity of care delivered while half is purely driven by price variation while 95% of the variation in expenditure for public programs like Medicare is explained by variation in the quantity of care delivered. 
Given that the largest portion of Americans (49%) receive health care coverage from their employer through private insurance plans rather than through Medicare and Medicaid (Kaiser Family Foundation 2017), this price variation among private insurers may affect what many Americans pay out of pocket for their healthcare. Moreover, this prior research such as Cooper et al. 2015 finds that this variation persists even when costs and quality are held constant.
This paper is most closely related to Cooper et al. 2015, but differs in several key respects: first, this analysis will focus a set of price data for hospital care in New Hampshire, while Cooper et al. 2015 relies on HCCI data which is a national cross-section sample and relies on claims data from Aetna, Humana, and United Health. While the HCCI data is a rich set of data that is perhaps nationally representative in a broad sense, none of these insurers are major players in the New Hampshire market; secondly, this paper will devote more attention to insurers’ relative market power as well as the effects on the uninsured who have minimal market power; lastly, I also include an analysis of how the share of Medicare patients at a given hospital affects the prices that hospital negotiates with private insurers.
Price Variation in the New Hampshire Market
The New Hampshire Hospital Association provides a list of the top outpatient CPT codes in 2016 at hospitals throughout the state, and the average costs associated with each. Current Procedural Terminology (CPT) codes provide a uniform language for coding medical procedures and services and are published and maintained by the American Medical Association (AMA). The New Hampshire Hospital Association lists the 82 most common outpatient CPT codes (out of several thousand). To provide a picture of the extent of variation in the prices for these services, I further narrow this list down to 10 of the most expensive services for which I can obtain data on private insurance payments and prices for uninsured individuals from NH HealthCost and Medicare payments from CMS. I present the resulting boxplot distributions in Figure 2.1, which includes payments by the uninsured, private insurers, and Medicare, and Figure 2.2, which only shows the payments made by private insurers. All price data presented reflect 2018 prices.
The Medicare prices were constructed for the relevant procedures/CPT codes using data from the 2018 Physician Fee Schedule (PFS) Relative Value Files and the following formula:
2018FacilityPricingAmount = [(WorkRVU x WorkGPCI) + (FacilityPERVU x PEGPCI) + (MPRVU x MPGPCI)] x ConversionFactor
I also use 2015 outpatient charge data from the Center for Medicaid and Medicare Services (CMS) to determine what kind of outpatient procedures tend to generate the greatest expenditures (as a result of both quality and price) as shown in Figure 2. In doing so, I assume that these outpatient patient procedures are at least somewhat representative of those required among non-Medicare patients.
| Ambulatory Payment Classification (APC) | Total 2015 Revenue (in $) |
|---|---|
| 0634 - Hospital Clinic Visits | 46,843,337 |
| 0269 - Level I Echocardiogram Without Contrast | 6,188,455 |
| 0377 - Level II Cardiac Imaging | 4,277,336 |
| 0207 - Level III Nerve Injections | 3,653,749 |
| 0015 - Level II Debridement & Destruction | 1,912,302 |
| 0336 - Magnetic Resonance Imaging and Magnetic Resonance Angiography without Contrast | 1,823,253 |
| 0267 - Level III Diagnostic and Screening Ultrasound | 1,761,210 |
| 0632 - Level 2 Examinations & Related Services | 1,323,198 |
| 0270 - Level II Echocardiogram Without Contrast | 1,105,370 |
| 0204 - Level I Nerve Injections | 844,183 |
For the exact same service, hospitals are able to charge different payers vastly different amounts. Below are some visual examples from the data that illustrate this variation between the three major private payers in New Hampshire (Anthem - NH, CIGNA, and Harvard Pilgrim Health Care) for the exact same service at the exact same hospital.
For hospitals which had a price range between insurers >$100 for ankle x-rays: 
Theoretical Framework
Both the hospital and the insurer are often interested in maximizing their profit margins per patient, even if the hospital is a non-profit (Horwitz 2005), and maximizing the number of patients they serve. Hospitals want to receive higher prices for their services but also to be included in insurers’ networks, as patients facing lower out-of-pocket costs when going to hospitals in network may be more likely to go to these hospitals. Insurers want to pay lower prices for hospitals’ services to minimize their costs but also want to attract enrollees by including convenient hospitals in their network. Thus, this is the bargaining environment in which bilateral hospital-insurer contracts are negotiated and the work below examines the impact on prices.
Data Sources
Raw data from NH HealthCost
The primary source of data on hospital costs comes from NH HealthCost which provides insurer-hospital specific estimations of total costs (reimbursements) for a long list of outpatient services and procedures. I copy and pasted this information for particular medical procedures and services into Excel spreadsheets (one for each medical procedure/service). At first, I attempted to mimic the 8 selected services analyzed in Cooper et al. (2018) (Inpatient, Hip Replacement, Knee Replacement, Cesarean Section, Vaginal Delivery, PTCA, Colonoscopy, and Lower Limb MRI), but the website only had data for colonoscopies and MRIs. I therefore chose to first look at radiology services only as these types of services (CT scans, MRIs, X-rays) should be reasonably assumed to have constant costs and quality within the same hospital. This allowed me to construct a data set containing the estimated price for each procedure and each provider-insurer combination for which data was available.
The following boxplot depicts the various distributions of estimated prices for each private insurer.
## Warning: Removed 4 rows containing non-finite values (stat_boxplot).
Insurance Coverage in New Hampshire
The pie charts below are taken from the NH Insurance Department 2017 Final Report of Health Care Premium and Claim Cost Drivers (published November 2018) and illustrate relevant information about the insurance market in New Hampshire.
Location of New Hampshire Hospitals (from Google Maps data):
CMS Data on Provider ID and Medicare Reimbursement:
Statistical Analysis
Methodology
The goal of this analysis is to determine whether there is a statistical difference between the prices hospitals charge Anthem, Harvard Pilgrim, and CIGNA in New Hampshire. That is, for the same service at the same hospital, is one insurer consistently paying a higher amount than the other two?
I create dummy variables for each of the insurers and a new variable (“percent_of_anthem”) which is the price as a percentage of the price Anthem pays for the same procedure at the same hospital. Data on the price Anthem pays certain hospitals for certain procedures is unavailable either because Anthem does not have a contract with that hospital or price information is simply not available for that particular procedure. This leads 1360 observations of 4511 total observations to be dropped from the analysis, leaving 3151 observations (unique hospital-insurer-procedure combinations) remaining. With the remaining data, I regress the “percent_of_anthem” variable on each insurer dummy variable (with the Anthem dummy being excluded) and include procedure fixed effects and hospital fixed effects to isolate within-hospital variation of prices and therefore plausibly control for quality and costs.
The results are listed below and show that CIGNA pays on average 24.594% more than Anthem and Harvard Pilgrim pays on average 12.936% more than Anthem.
##
## =====================================================================================================
## Dependent variable:
## ---------------------------
## percent_of_anthem
## -----------------------------------------------------------------------------------------------------
## CIGNA 2.836
## (3.549)
##
## Harvard_Pilgrim_HC -10.477***
## (3.173)
##
## factor(provider_name)Advanced Foot Ankle Specialists
## (37.077)
##
## factor(provider_name)Afc Urgent Care 31.089
## (51.099)
##
## factor(provider_name)Affiliates In Podiatry -26.704
## (37.077)
##
## factor(provider_name)Alice Peck Day Memorial Hospital -27.379
## (23.062)
##
## factor(provider_name)Andrea M Dionne, DO 13.353
## (31.278)
##
## factor(provider_name)Androscoggin Valley Hospital -13.408
## (20.597)
##
## factor(provider_name)Anna Jaques Hospital -23.757*
## (13.923)
##
## factor(provider_name)Appledore Medical Group 118.241***
## (37.382)
##
## factor(provider_name)Atlantic Orthopaedics -18.730
## (16.343)
##
## factor(provider_name)Atlantic Urology Associates 9.292
## (51.772)
##
## factor(provider_name)Atrius Health 5.185
## (37.382)
##
## factor(provider_name)Bedford Ambulatory Surgical Center 7.826
## (17.770)
##
## factor(provider_name)Bedford Ambulatory Surgical Center Imaging 159.895***
## (26.012)
##
## factor(provider_name)Bedford Commons OBGYN -11.447
## (19.764)
##
## factor(provider_name)Bedford Podiatry Group -50.479
## (37.077)
##
## factor(provider_name)Bedford Women's Care Associates -8.945
## (42.611)
##
## factor(provider_name)Capital Orthopaedic Surgery Center 12.499
## (25.599)
##
## factor(provider_name)Catholic Medical Center -53.254***
## (15.516)
##
## factor(provider_name)Center For Diagnostic Imaging -36.998
## (37.405)
##
## factor(provider_name)Concord Ambulatory Surgery Center 10.645
## (24.388)
##
## factor(provider_name)Concord Endoscopy Surgery Center -21.231
## (23.502)
##
## factor(provider_name)Concord Hospital -42.487***
## (12.089)
##
## factor(provider_name)Concord Imaging Center 18.595
## (17.527)
##
## factor(provider_name)Concord OBGYN 5.130
## (31.345)
##
## factor(provider_name)Concord Orthopaedics -40.058***
## (14.381)
##
## factor(provider_name)Convenient MD -43.126***
## (15.384)
##
## factor(provider_name)Core Physicians -19.440
## (15.302)
##
## factor(provider_name)Cottage Hospital -49.643*
## (28.867)
##
## factor(provider_name)Dartmouth-Hitchcock (Concord) -16.759
## (17.321)
##
## factor(provider_name)Dartmouth-Hitchcock (Keene) -10.399
## (18.426)
##
## factor(provider_name)Dartmouth-Hitchcock (Manchester) -2.579
## (17.086)
##
## factor(provider_name)Dartmouth-Hitchcock (Nashua) -12.970
## (17.382)
##
## factor(provider_name)Dartmouth-Hitchcock Clinic -22.456
## (37.995)
##
## factor(provider_name)Dartmouth-Hitchcock Medical Center 3.087
## (23.293)
##
## factor(provider_name)Derry Imaging Center -33.384**
## (16.839)
##
## factor(provider_name)Dover Foot 33.900
## (37.077)
##
## factor(provider_name)Dover Women's Health 13.127
## (22.159)
##
## factor(provider_name)Elliot Hospital -55.439***
## (11.816)
##
## factor(provider_name)Elliot One-Day Surgery Center -23.270
## (27.485)
##
## factor(provider_name)Elliot Physician Network 7.997
## (51.326)
##
## factor(provider_name)Essex Orthopaedics Sports Medicine
## (16.994)
##
## factor(provider_name)Exeter Hospital -51.561***
## (12.031)
##
## factor(provider_name)ExpressmedExpressmed 24.435
## (42.640)
##
## factor(provider_name)Feminist Health Center of Portsmouth -52.331
## (42.611)
##
## factor(provider_name)Foot Health Center of Merrimack Valley -37.811
## (37.077)
##
## factor(provider_name)Foundation Medical Partners -2.941
## (17.056)
##
## factor(provider_name)Four Seasons Imaging -62.682***
## (23.088)
##
## factor(provider_name)Franklin Regional Hospital -64.329***
## (22.536)
##
## factor(provider_name)Frisbie Memorial Hospital -2.695
## (27.478)
##
## factor(provider_name)Garrison Women's Health Center 10.004
## (20.967)
##
## factor(provider_name)Granite State Lab 25.185
## (37.382)
##
## factor(provider_name)Granite State Podiatry Associates -54.539
## (37.077)
##
## factor(provider_name)Greater Salem Family Footcare Associates -21.637
## (42.272)
##
## factor(provider_name)Harbour Women's Health -20.029
## (23.508)
##
## factor(provider_name)Hillside Surgery Center 4.259
## (32.123)
##
## factor(provider_name)Huggins Hospital -55.121**
## (22.970)
##
## factor(provider_name)Krislan of New England -14.103
## (31.273)
##
## factor(provider_name)Kristin Visco, Dpm Aacfas -42.258
## (42.272)
##
## factor(provider_name)Laboratory Corporation of America 48.399
## (37.382)
##
## factor(provider_name)Laconia Clinic 73.066
## (51.424)
##
## factor(provider_name)Lahey Health 15.667
## (19.957)
##
## factor(provider_name)Lakes Region General Healthcare -37.956**
## (14.913)
##
## factor(provider_name)Lawrence General Hospital 4.299
## (19.963)
##
## factor(provider_name)Littleton Regional Healthcare 86.653***
## (15.769)
##
## factor(provider_name)Lowell General Hospital 49.781***
## (15.370)
##
## factor(provider_name)LRGHealthcareLRGHealthcare -28.907*
## (17.295)
##
## factor(provider_name)Maine Health -64.398*
## (37.382)
##
## factor(provider_name)Manchester Obstetrical Associates -27.078
## (21.197)
##
## factor(provider_name)Manchester Urology Associates 5.578
## (37.995)
##
## factor(provider_name)Martin's Point Health Care -7.280
## (29.000)
##
## factor(provider_name)Mary Hitchcock Memorial Hospital -37.936***
## (11.914)
##
## factor(provider_name)Mary Jo Montanarella, MD -4.415
## (26.414)
##
## factor(provider_name)Memorial Hospital -46.792***
## (12.762)
##
## factor(provider_name)Merrimack Valley Endoscopy Center -20.238
## (37.808)
##
## factor(provider_name)Michael P. Romanowsky Family Medicine 10.100
## (42.543)
##
## factor(provider_name)Monadnock Community Hospital -53.489***
## (14.543)
##
## factor(provider_name)Monadnock OBGYN Associates -12.739
## (22.032)
##
## factor(provider_name)New England Foot Ankle
## (37.077)
##
## factor(provider_name)New Hampshire Neurospine Institute -5.647
## (23.186)
##
## factor(provider_name)New Hampshire Orthopaedic Center -14.818
## (14.108)
##
## factor(provider_name)Northeast Endoscopy Center -1.305
## (42.862)
##
## factor(provider_name)Northeast Urologic Surgery 9.868
## (37.995)
##
## factor(provider_name)Northeastern Vermont Regional Hospital 79.456***
## (23.262)
##
## factor(provider_name)Orchard Surgical Center 6.004
## (23.553)
##
## factor(provider_name)Orthopaedic Surgical Associates -29.322
## (21.577)
##
## factor(provider_name)Orthopaedics Northeast -33.624
## (23.776)
##
## factor(provider_name)Orthopedic Surgery Center Derry 49.942
## (44.987)
##
## factor(provider_name)Parkland Medical Center -64.304***
## (13.210)
##
## factor(provider_name)Partners For Women's Health -28.402
## (23.508)
##
## factor(provider_name)Pentucket Medical Associates -43.084
## (37.382)
##
## factor(provider_name)Peter Joseph Degnan, MD -9.537
## (37.382)
##
## factor(provider_name)Portsmouth Ambulatory Surgery Center 55.927***
## (20.878)
##
## factor(provider_name)Portsmouth Foot Ankle
## (37.077)
##
## factor(provider_name)Portsmouth Regional Hospital -33.826***
## (12.458)
##
## factor(provider_name)Quest Diagnostics 125.185***
## (37.382)
##
## factor(provider_name)Saco River Medical Group 265.193***
## (42.543)
##
## factor(provider_name)Seacoast Orthopedics Sports Medicine
## (14.234)
##
## factor(provider_name)Shields Imaging -29.543
## (21.192)
##
## factor(provider_name)Southern New Hampshire Internal Medicine Associates -12.118
## (42.272)
##
## factor(provider_name)Southern NH Medical Center -65.649***
## (11.943)
##
## factor(provider_name)Speare Memorial Hospital -37.472***
## (12.457)
##
## factor(provider_name)Springfield Medical Care System -36.018**
## (15.595)
##
## factor(provider_name)St. Joseph Hospital -64.716***
## (12.204)
##
## factor(provider_name)Steward Medical Group -9.072
## (13.651)
##
## factor(provider_name)Stratham Ambulatory Surgery Center (paradigm ) -38.104
## (25.207)
##
## factor(provider_name)Terrance George Hanlon, MD 1.574
## (37.382)
##
## factor(provider_name)The Surgery Center of Greater Nashua -7.567
## (29.490)
##
## factor(provider_name)Thomas Vaill King, MD -30.851
## (28.808)
##
## factor(provider_name)Upper Connecticut Valley Hospital -6.032
## (26.045)
##
## factor(provider_name)Valley Regional Hospital -62.189***
## (13.637)
##
## factor(provider_name)Veterans Administration Medical Center -16.963
## (18.740)
##
## factor(provider_name)Weeks Medical Center -59.177***
## (19.419)
##
## factor(provider_name)Wentworth Surgery Center -16.267
## (20.062)
##
## factor(provider_name)Wentworth-Douglass Hospital 73.796**
## (37.382)
##
## factor(provider_name)William Albert Selleck, MD -0.545
## (37.995)
##
## factor(provider_name)Women's Life Imaging 8.858
## (37.259)
##
## factor(provider_name)York Hospital -20.213
## (12.891)
##
## factor(procedure)Arthroscopic Shoulder Surgery 40.591**
## (19.091)
##
## factor(procedure)Blood test for complete blood cell count (hemoglobin) -13.620
## (15.331)
##
## factor(procedure)Bone Density Scan (outpatient) 0.000
## (16.801)
##
## factor(procedure)Colonoscopy with biopsy (outpatient) -39.632**
## (15.721)
##
## factor(procedure)Colonoscopy with polyp removal (outpatient) -41.879***
## (15.635)
##
## factor(procedure)CT - Abdomen Pelvis, with contrast
## (16.933)
##
## factor(procedure)CT - Chest (outpatient) -23.018
## (17.523)
##
## factor(procedure)CT - Head&Brain, without dye -1.650
## (19.346)
##
## factor(procedure)Diagnostic colonoscopy (outpatient) -39.984***
## (14.925)
##
## factor(procedure)Emergency Department Visit - Low Complexity (outpatient) 1.433
## (15.589)
##
## factor(procedure)Emergency Room Visit - Medium (outpatient) -33.976*
## (17.462)
##
## factor(procedure)Mammogram (outpatient) -57.053***
## (15.049)
##
## factor(procedure)MRI - Back (outpatient) 6.822
## (15.877)
##
## factor(procedure)MRI - Brain (outpatient) -17.407
## (17.153)
##
## factor(procedure)MRI - Knee (outpatient) -8.905
## (15.836)
##
## factor(procedure)MRI - Pelvis (outpatient) -35.214*
## (20.290)
##
## factor(procedure)MRI - Shoulder, Elbow, or Wrist 1.991
## (16.140)
##
## factor(procedure)Myocardial Imaging (outpatient) -38.988**
## (18.201)
##
## factor(procedure)Tonsillectomy with Adenoidectomy (outpatient) 14.110
## (21.817)
##
## factor(procedure)Ultrasound - Abdominal, Complete -28.609*
## (16.300)
##
## factor(procedure)Ultrasound - Abdominal, Limited -31.666*
## (16.780)
##
## factor(procedure)Ultrasound - Breast (outpatient) -31.016*
## (16.302)
##
## factor(procedure)Ultrasound - Head and Neck -41.585**
## (16.375)
##
## factor(procedure)Ultrasound - Pelvic (outpatient) -18.890
## (18.319)
##
## factor(procedure)Ultrasound - Pregnancy (outpatient) -38.136**
## (16.230)
##
## factor(procedure)Ultrasound - Pregnancy follow-up -40.677**
## (15.980)
##
## factor(procedure)Ultrasound - Transvaginal (non-maternity) -19.941
## (15.591)
##
## factor(procedure)Upper Gastrointestinal Endoscopy, with biopsy 14.110
## (21.817)
##
## factor(procedure)Urine Capacity Measurement -40.824**
## (16.804)
##
## factor(procedure)X-Ray - Abdomen 4.461
## (17.210)
##
## factor(procedure)X-Ray - Ankle (outpatient) -20.519
## (15.360)
##
## factor(procedure)X-Ray - Chest (outpatient) -23.031
## (15.650)
##
## factor(procedure)X-Ray - Foot (outpatient) -23.309
## (14.928)
##
## factor(procedure)X-Ray - Hand -29.092*
## (15.370)
##
## factor(procedure)X-Ray - Hip -26.044*
## (15.369)
##
## factor(procedure)X-Ray - Knee (outpatient) -27.004*
## (15.145)
##
## factor(procedure)X-Ray - Middle Back (Spine, Thoracic) -11.900
## (20.877)
##
## factor(procedure)X-Ray - Neck (Spine, Cervical) -9.369
## (17.312)
##
## factor(procedure)X-Ray - Pelvis -31.730
## (19.378)
##
## factor(procedure)X-Ray - Shoulder (outpatient) -30.694**
## (15.093)
##
## factor(procedure)X-Ray - Spine (outpatient) -19.006
## (15.522)
##
## factor(procedure)X-Ray - Wrist (outpatient) -29.901*
## (15.965)
##
## Constant 177.845***
## (17.110)
##
## -----------------------------------------------------------------------------------------------------
## Observations 2,960
## R2 0.245
## Adjusted R2 0.202
## Residual Std. Error 70.283 (df = 2798)
## F Statistic 5.650*** (df = 161; 2798)
## =====================================================================================================
## Note: *p<0.1; **p<0.05; ***p<0.01